Greetings. And welcome to the Advantage Solutions First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Ruben Mella, Vice President of Investment Relations. Thank you, Ruben. You may begin.

Thank you, Operator. And thank you everyone for joining us on Advantage Solutions first quarter earnings conference call. On the call with me today are Dave Peacock, Chief Executive Officer; Chris Growe, Chief Financial Officer; and Sean Choksi, Senior Vice President of Strategy and M&A. Dave and Chris will provide their prepared remarks, after which we will open the call for question-and-answer session. During this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management’s current expectations and involve assumptions, risks, and uncertainty that are difficult to predict. It is important to note that the actual outcomes and results could differ materially due to several factors, including those described more fully in the company’s annual report on Form 10-K filed with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors. The company does not undertake any duty to update or revise any forward-looking statement, except as required by law. We want to draw your attention to the fact that management remarks today will focus on certain non-GAAP financial measures. Our earnings release issued earlier today provides detailed reconciliations of these non-GAAP financial measures to the most comparable GAAP measure. This call is being webcast and a recording will also be available on the company’s Investor Relations website. We will refer to our presentation during the prepared remarks, which is also accessible on the Events and Presentation section of the IR website. And now, I would like to turn the call over to Advantage’s CEO, Dave Peacock.

Thanks, Ruben. Good morning, everyone, and thank you for joining us. As you saw in our results issued this morning, we unveiled our new reporting segment, Branded Services, Experiential Services, and Retailer Services, which we believe provide a clearer picture of our business and the drivers of our financial performance. We reported revenues excluding pass-through costs of $771 million and adjusted EBITDA of $79 million for the quarter, both inclusive of discontinued operations. We also paid down $51 million in debt and bought back approximately 3 million shares in the first quarter and nearly 2 million shares in April, which is consistent with our objective of offsetting dilution and taking advantage of what we believe is an undervalued stock price. Our financial results for the quarter were in line with our internal budget, and we remain on track to achieve our full-year guidance. Experiential Services outperformed our expectations in the quarter. Retailer Services also performed well despite holiday timing and a tough comparison. For Branded Services, our decline in client orders due to market softness and higher-than-anticipated costs drove the year-over-year decline in adjusted EBITDA. Overall, the Advantage team did a great job implementing our strategic initiatives, transitioning the resignation of two client relationships, and executing the expansion of services for our large, existing client for our demonstration services in a challenging market environment. Inflation and the rising cost of living continue to pressure a growing segment of our consumers. We believe those macro factors contributed to the market softness in the first quarter as measured in total U.S. and food channels. Our upcoming Advantage Outlook survey of nearly 100 retailers and CPG manufacturers provides valuable insights into what they expect in the coming months. Approximately 40% of retailers surveyed expect to increase online fulfillment labor over the next six months. Retailers tell us they are continuing to lean into private brands as unit volume continues to grow, and their top strategies over the next six months are increasing product basings and displays and adding new items. Retailers also remain focused on promotions to gain share. That is followed by an emphasis on impulse items and digital programs. Our Retail Services team includes Daymon, a leading private brand broker for scores of retailers, in our SAS division, which helps retailers with shelf resets, remodels, and other in-store services, and is a perfect partner to address this growing demand for on-shelf support. Our Branded Services team and their retail merchandising arm that visits stores for CPG firms to ensure on-shelf availability and display execution will also be engaged as retailers seek to increase efforts in these areas. Over half of the manufacturers in our survey say they plan to increase trade dollars, discount depth, and frequency of promotion to drive volume, with displays highlighting lower prices and generating new sales at regular prices. These trends align perfectly with our capabilities in Branded Services as we engage hundreds of retailers on behalf of thousands of clients in selling in new programs at retail headquarters. Our Experiential Services Group will also continue to benefit from the growth, both realized and expected, in mass, club, and grocery channels. We believe our competitive advantage is a differentiated understanding of the entire consumer ecosystem stemming from our unique position at the intersection of brands and retailers, brick-and-mortar and e-commerce, and private label and CPG. This gives a deep understanding of our clients’ and customers’ challenges and opportunities while positioning us as a conduit to both groups’ efforts to drive performance. That means we can provide a high return on investment for CPGs and retailers because we have a unique perspective across the entire consumer industry and the technology, insights, and culture to adapt quickly to market changes. Our business is highly relational, and our teammates are committed to serving with heart and executing relentlessly. Building trust and working to earn it daily is critical to our success and is reflected in our reputation as one of Newsweek’s World’s Most Trustworthy Companies of 2024. This is a great tribute to our 70,000 plus teammates who endeavor every day to earn this distinction. The trust we earn has led us to enduring relationships with clients that have lasted for decades. Among our top 100 clients, the average relationship duration is more than 15 years with approximately 95% retention over time. For example, a leading global personal care product company returned to us after spending time with a lower-cost competitor. They needed a trustworthy provider to deliver the required services with the proper scope, flexibility, and productivity, and our team is able to do that and deliver in this way with a high return on investment. Branded Services will provide retail merchandising across multiple categories and surge work to double down during critical seasonal and promotional periods for this client. We’re excited to have them back, and we will prove they made the right decision. We signed a multi-million-dollar agreement with a well-known leader in the juice industry. After delivering a solid return on investment during a test, Advantage’s retail merchandising arm of the Branded Services team will drive all retail execution and merchandising for this company. We are expanding our relationship with a long-standing Branded Services client in center store frozen packaged goods. Our agreement includes headquarter sales, category management, and administration across grocery and leading all digital commerce execution. Our collaboration is poised to elevate this brand further as the client leans into new innovations to meet evolving consumer demands. We successfully renewed two longstanding major big box retailers for our Experiential Services. One of the deals expands on services we have provided for over a decade in e-commerce, executing digital sampling inside monthly beauty subscription boxes for more than 150,000 subscribers. The other big box retailer relies on us for innovative approaches to execute a beauty products concierge strategy with content, a learning library, and a virtual advice program. Finally, Advantage’s Experiential Services continues innovating and differentiating its service offerings and impactful ways to share and deliver member experiences, proving why it has been the number one Experiential business in the United States for the last 10 years. We are the primary partner for a channel-leading client where we lead all sampling experiences in locations across the U.S. and 12 countries. Our global footprint often gives us a leg up and opens the doors to new opportunities; building off the success of our unique Experiential offerings in Japan, we have launched teppanyaki carts in more than 100 locations in Canada. These carts allow us to offer an exciting approach to sampling food items and a new way to engage with shoppers. It also opens sampling opportunities for more products such as meat, fresh produce, and frozen food. The first week of the Canadian launch generated an average sales lift of over 150% for the products we sampled, and we are excited about what the future holds as we explore expanding into the U.S. As we look to the road ahead, we are energized by Advantage’s untapped potential as we invest in talent, tools, and technology. In the area of technology, we are focusing on commercial capabilities while also exploring partnerships where we can leverage leaders in other industries to enhance our ability to serve clients more effectively. A centerpiece of our modernized technology capabilities is our relationship with Genpact. We are already using generative AI to deliver new and innovative solutions with greater speed and accuracy within the order-to-cache and back-office administration functions, unlocking value and creating a competitive advantage for 500 clients and counting. There is much more to come as our relationship evolves and grows. Separately, we are investing in establishing our own AI core competency center, which aims to weave AI where it best benefits our business, from applications that serve customers such as contract management and routing merchandisers to those that serve internal needs like HR workflow and certain analysis of large data sets. Our evolution as a future-focused, insights-driven strategic provider requires us to be high touch, high tech, and high value, and we will continue to invest in leading-edge capabilities and partnerships. Advantage recently entered into an agreement with a retail technology company specializing in image recognition to provide real-time inventory tracking at retail. We are co-developing solutions that enable us to make faster, smarter decisions about what is happening on the shelf. Together, we will enhance retail execution by combining our reach across the industry with their high-speed analytic capabilities. We are also enhancing data visualization tools to fuel our omni-commerce efforts and capabilities. Competitors often rely on third-party data to inform decisions. Once complete, our modernized tech tools are expected to offer a significant point of difference. For example, we expect to overlay 600 million points of proprietary data to share detailed analytical dashboards with real-time insights on performance by category, region, and store to our clients. In the not-too-distant future, we will be able to visualize in seconds what took days or weeks in the past and pinpoint root causes immediately to solve potential problems and capitalize on higher return opportunities for our brand clients and our retail customer teams. For this year, we are focused on testing these capabilities and based on the results, begin the implementation phase with our team. We are complementing our scale, reach, and relationships with modern technology to better deliver our breadth of services, so that brands and retailers can truly differentiate themselves in the marketplace. We will continue to evaluate opportunities to leverage technology for the benefit of our clients. With more leading-edge commercial capabilities and an integrated operating model, we are confident Advantage will continue to lead as a strategic provider of choice to deliver the speed and precision required to convert more shoppers into buyers. That is why our strategy to simplify the business matters. Aligning Advantage’s time, talent, and resources with its core capabilities is crucial to the company’s long-term success. Our recent announcement of the sale of Adlucent represents another step towards that vision, as well as reducing debt to optimize our capital structure.

Thank you, Dave, and welcome to all of you joining the call today. My comments regarding our financial performance will include discontinued operations. Foreign exchange had a minimal impact on our first quarter results because of the deconsolidation of the Advantage Smollan European joint venture. In addition to our new reporting segments, we will also discuss our revenue performance, excluding pass-through costs, which provides a clearer picture of our topline performance and is similar to our peers’ information. Consolidated revenues were $771 million, excluding approximately $135 million in pass-through costs. Revenues increased by 1% when excluding divestitures and the impact of foreign exchange. Adjusted EBITDA was $79 million, representing a 10.2% margin on revenues, less pass-through costs. We expected a decline in adjusted EBITDA in the first quarter; however, the margin drag was more than planned as robust growth from Experiential Services and a good performance from Retailer Services were offset by softer performance in Branded Services. We continue to focus on achieving pricing in relation to inflation across our business, which we did in the first quarter, but we cannot fully cover the inflationary pressures, especially in January and February. Our financial performance improved in March, and early results in April were favorable. Our investments and initiatives are designed to enhance the delivery of our services to current clients and customers and attract new business. While that has increased costs year-over-year by approximately $10 million in the quarter, the new organizational structure will allow us to improve operational efficiencies and further optimize our cost structure under the new shared services model. This will be complemented by the expected benefits of collaboration with Genpact and Tata Consultancy Services. The leadership team takes its fiduciary duties seriously and manages our cost and capital appropriately, focusing on achieving efficiency for our business, clients, and customers. We will share more details as these efforts take hold. I want to take a few minutes to review our performance by segment, beginning with Branded Services. Revenues, excluding approximately $50 million in pass-through costs, as well as the impact of FX and divestitures, declined approximately 3% to $314 million. Adjusted EBITDA was $41 million. There were three factors that drove the performance. First, we worked to complete the transition of two client resignations in the quarter, which impacted revenues, but also cost to a greater degree. Ideally, we timed the reduction of the expenses associated with the conclusion of services. Timing it right is not easy, and we absorbed more costs than expected in the quarter. Second, the soft market conditions Dave mentioned, especially early in the quarter, were partially driven by shipment timing to retailers and a decline in client orders. Third, the investments to implement several of our strategic initiatives outside of the ERP upgrade were higher than planned. We do not expect to offset those investments later in the year. Moving to Experiential Services, revenues, excluding $85 million in pass-through costs, as well as the impact of FX, increased nearly 21% to $228 million. Adjusted EBITDA was $17 million, a 150% increase over the prior year. Our event count reached 88% of 2019 pre-pandemic levels. Daily event activity, measured in thousands per day, increased by approximately 13%. Our teams did a terrific job leveraging our current infrastructure to support the volume growth in the quarter, which drove the improvement in Adjusted EBITDA margin over the prior year. Finally, let’s turn to Retailer Services. Revenues declined approximately 6% to $229 million. Adjusted EBITDA was $20 million, an approximate 16% decline over the prior year. An earlier Easter holiday limited in-store activities for our teams as retailers focused on execution. The timing of the holiday reversed in April, which will benefit the second quarter. We also faced a tough prior year comparison when we completed in-store modeling activities that did not repeat this quarter. We were able to offset some of these factors by implementing price increases, managing costs, and improving working capital management. Moving to our balance sheet, last month we repriced our $1.1 billion term loan from SOFR + 450 basis points to SOFR + 425 basis points. We were pleased with the demand from investors who support the work we are doing to advance our strategic objectives. The 25 basis point reduction is expected to save approximately $3 million in annualized interest expense at current debt levels. During the quarter, we voluntarily repurchased approximately $51 million in secured notes at an attractive discount. As of March 31st, our total funded debt outstanding was approximately $1.8 billion, with nearly 90% of our debt hedged or at fixed interest rates. Our net leverage ratio was approximately 4.2 times inclusive of discontinued operations. As we announced last quarter, our long-term target is to reduce the net leverage ratio to below 3.5 times. We were active in the quarter with about $12 million in share repurchases and an additional $8 million in April. We repurchased nearly 5 million shares to offset employee incentive-related dilution and to take advantage of what we believe is an undervalued stock price. The first quarter was busy with investments to execute our strategic objectives. CapEx was approximately $16 million, which was below our expectations but still in line with our plan to spend $90 million to $110 million this year. We are creating technology platforms for data modernization, cloud-based capabilities including AI and other tools to improve the operating efficiencies Dave described earlier. Despite these investments, we generated approximately $40 million in adjusted unlevered free cash flow or 50% of adjusted EBITDA, inclusive of discontinued operations, representing another quarter of solid cash conversion. We reaffirm our guidance for 2024 with revenues and adjusted EBITDA expected to grow by low-single digits. This means growth from a lower revenue base due to the announced Adlucent sale to BarkleyOKRP, creating the capacity to further prioritize core capabilities to clients with best-in-class services. Our guidance does not include the possible impact of future divestitures as we continue to evaluate opportunities for additional actions to focus on our core capabilities and pay down debt. Given the accelerated investments in technology and people and the impact of wage inflation, we now expect a greater weighting towards the year’s second half to deliver our full-year adjusted EBITDA. Our guidance for book interest expense, unlevered free cash flow, and CapEx remains in place. The recent refinancing of our term loan will lead to lower interest expense, although this is captured within our guidance range. As I mentioned last quarter, 2024 is the year of investment to transform Advantage. We accomplished a lot in the first quarter. Progress on our IT transformation remains on track, and we continue optimizing our business to improve execution and operational efficiency. What is underappreciated is that our plan to grow revenue and adjust EBITDA contemplates planned investments and actions to simplify the business. Our core values include leading with insights and executing relentlessly. I can’t think of a better testament to our teammates’ daily work and to enhanced capabilities than for us to achieve growth in a year of significant change to advance our strategic goals.

Thanks, Chris. Over the last six months, we have diligently and consistently worked to simplify our business and enhance our capabilities so we can better serve our CPG firms and retailers who rely on us every day to win in the market. While this work will continue, I cannot thank our team enough for their focus, dedication, and persistence in staying on task. We remain on track to achieve our objectives this year across the organization. We are implementing the right plans to expand our competitive advantages and become our clients’ and customers’ strategic provider of choice. Our scale, capabilities, and deep understanding of the consumer industry position us to win, which ultimately will drive growth and value creation for our shareholders. We will now take your questions.

Thank you. Thank you. Our first question comes from the line of Joe Vafi with Canaccord Genuity. Please proceed with your question.

Good morning. This is Pallav Saini on for Joe. Thanks for taking our questions. My first question is on the macro. Is it fair to say that your clients are incrementally more cautious, but they are still prioritizing strategic initiatives like private label, digital programs, etc.? And are you seeing any changes to the pace of implementation of these programs, given the more cautious outlook here, perhaps?

Thanks for the question. I think, we saw a couple of things from a macro standpoint in the market. Obviously, there is economic uncertainty in the market, and I would argue that a lot of consumers, especially on the lower end of the economic spectrum, are being pinched by the current environment of continued inflation and just challenges within the economy. That has driven private label growth in the business, and we are seeing unit growth overall in private label and a strong business there. I would say, when you look at the Branded Services side of our business, we saw some destocking at the retail level, as well as a slowdown in point-of-sale product or volume movement or dollar movement overall, and this is talking about the entire consumer category. So, I think, fundamentally, that some of that is short-term in the sense that if retailers are reducing inventory, that is not going to continue throughout the year. They do that over kind of a one-time period and that had an impact on revenues for the Branded Services area. But from a client standpoint, we see them aggressively trying to drive unit growth from a CPG standpoint and really from a retailer standpoint. So, there is actually a little bit of a convergence and objective between our CPG clients and our retailer customers.

Hey, Pallav. This is Chris Growe. I might just add a quick comment to that. Just that there was, as Dave mentioned, a little softer start to the year. We did see that improve, though, throughout the quarter. So, I think that is just one thing to keep in mind. And secondarily, we have talked about, and you can see it in the Experiential business, a nice improvement there in volume and really execution on our part, but beyond that, really just an increase in volume overall. So, we are seeing some of that activity investment, if you will, from our clients that we are benefiting from on the other side on the Experiential side.

Thanks, Dave and Chris. That is helpful. Just to follow up to that, Chris, what type of growth is embedded in your 2024 outlook for Experiential Services?

So, we are not going to give guidance by segment, and I think this is obviously the first time we are showing you the segments, and we will have more information as we move forward on that. I would just say that we are seeing a nice recovery here and continued recovery in volume, and we are also seeing strong price realization in that business. I know we are really focusing more on metrics in that business that denote profitability, but I would just tell you that in the quarter, we were like 88% of 2019 volumes in the demonstration business, in the Experiential business. So, we saw a nice sequential increase in the level of activity in that business, and that may give you some feel for the rate of growth throughout the year. We do expect it to continue to grow sequentially through the year.

Great. Thanks. Thanks for the color, Chris. And just last one from me. You have been pretty active in simplifying the portfolio over the last six months or so. How do you see the composition of the portfolio now? Is there opportunity for further refinement here? Thanks, guys.

Yeah. There is, and we continue to be active in that space. And as you are seeing, probably, there is a movement to get to our core business, and I think as we get through this process, and especially get into the summer, that will become even more clear. And I think we will be able to speak a lot more openly about what that core business is and where we actually see it going. But I can assure you that the resources that we are devoting to growth, acceleration, and cost management are really focused on the core businesses as we are simultaneously looking at our portfolio, and as you said, making some decisions to simplify and sell off some businesses.

Great. Thanks again.

Thank you. Our next question comes from the line of Faiza Alwy with Deutsche Bank. Please proceed with your question.

Yes. Hi. Thank you. I think that is me, Faiza.

Hi. Sorry, Faiza.

I wanted to ask about the higher costs you mentioned. It seems like they were due to increased planned investments, some inflation, and possibly higher costs that weren't absorbed because of the divestitures. Could you provide more details on that? You also mentioned that costs are expected to improve throughout the year, so could you discuss how we should view all of this?

Thank you for the question, Faiza. I believe you're primarily focusing on the Branded Services segment. You've pointed out several important aspects. Firstly, there is significant transformation and portfolio work happening in that area, which you noted was largely planned. Additionally, we experienced intentional client exits during the quarter. These weren't divestitures, but rather planned departures from clients. The timing of these exits was such that they occurred within the quarter, which created some challenges with cost absorption related to adjusting for those exits. As you can imagine, since we operate in people-driven businesses, we need to effectively serve clients up until their exit date. This can complicate the timing of organizational adjustments. However, we expect cost improvements moving forward due to the actions we have already implemented. For example, we made early workforce adjustments in the second quarter based on the client exits.

You mentioned wage inflation, which we haven't heard much about from other companies suggesting a possible reacceleration. Can you clarify what you mean by this? You mentioned the term persistent. Where do we currently stand on wage inflation? Should we expect additional pricing increases since price realization hasn't fully addressed the inflationary pressures? When and where can we expect to see these changes?

Right. So, when you look at our business, obviously, as we described a minute ago, it’s a lot of people, and we actually have a lot of transportation as it relates to workforce moving around, if you will, to service the business. And so you look at a couple cost areas. Wage inflation was continued to be persistent. It was higher than we expected. It wasn’t necessarily higher than past quarters or even maybe last year, but it was higher than we expected. And then you have things like gas prices that we’ve seen more recently to kind of take up in certain markets and a lot of markets. So those are the areas where we see the inflation flow through. And for us, it’s just making sure that we’re managing the business. One, to be as cost-efficient as possible when those situations arise. And then two, as you said, in the areas where we’re able to realize a price for that. And obviously, in parts of our business, we actually have contract structures where it could be a cost-plus situation or a commission situation where pricing is not really the issue, and so there’s kind of a natural price flow through, if you will, depending on the revenues for our clients when it’s a commission situation or the specific cost environment we may be facing.

I would like to add that in the first quarter, several regulatory changes contributed to higher wages. These changes took effect on January 1. Throughout our business, labor inflation has been consistent, without any acceleration. We expect to see inflation in the low-to-mid single-digit range this year, while last year we were in the mid-single digits. The first quarter appears to have continued in that mid-single-digit range. The key takeaway is that inflation has been slightly higher than anticipated, but we believe it will stabilize moving forward. Our focus is on managing this situation effectively. We are evaluating our costs and implementing pricing initiatives that could help counterbalance some of these expenses. Additionally, we are managing our product mix along with other strategies to address inflation throughout the year.

Okay. Got it. And then just last one, you mentioned improved results in March, which appear to be continuing in April. So what’s driving that? Is it just that you’re done with sort of the inventory rationalization, or is there something else from a macro perspective or something else that’s unique to you?

I believe you are spot on. The inventory rationalization is happening to some extent, but as I mentioned earlier, it could be temporary. Once you adjust your inventories, you tend to operate from that baseline moving forward. We are observing overall improved shipments for our clients collectively. In the Retailer segment, we experienced an Easter shift, meaning that this part of the business can be influenced by the timing of Easter, which occurred in the first quarter. Additionally, some of the in-store work tends to decrease significantly right before holidays, and we noticed this reversal in April. This serves as another example from the Retailer segment. I also pointed out previously that we have implemented cost measures reflecting the client departures we had in the first quarter, and we expect this to have an impact as we move into the second quarter. We are beginning to see some positive results in the early numbers for April.

Excellent. Thank you so much.

Thank you.

Thank you. There are no further questions at this time. I’d like to turn the floor back over to Dave Peacock for closing comments.

Thank you, Operator. We appreciate your time this morning and your interest in Advantage Solutions. We are excited about our prospects this year and look forward to updating you on the progress to expand our competitive advantages as a partner of choice with clients and customers. Thanks again for your time today.

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.